“NEW EXCISE TAX ON BEER SHOULDN’T MEAN HIGHER PRICES FOR BEER”

Wed, 05/02/2018 - 11:42am

Dear Editor,

A recent story in Samoa News regarding the new ASG excise tax scenario of 35 cents per 12 ounces of beer stated that, as a result of the change in the way that excise tax will now be calculated “consumers will pay more at the tap”. This is not entirely accurate. The truth is that the price of bargain beers should remain about the same, high-end beers should actually decrease, and that only a few (mainly those in bottles over 24 ounces in size) will experience an increase.

While I don’t have the actual percentage markups that local beer importers and retailers use, a bit of research on the web indicates that the average markup for beer in the US is between 20-40%, so for my calculations I used a median of 30%.

Using that markup percentage, I then worked backwards to calculate the tax paid under the old tax regime of 190% of imported value, and then compared that with the new excise tax of 35 cents per 12 ounces. (Note: Numbers are rounded off slightly to simplify things.)

Starting with the retail cost of 1 dollar for a 12 ounce can, divide by 1.3 which gives the wholesale price of 77 cents (that’s how much the retailer pays to the distributor) which divided by 1.3 gives the cost to the importer/distributor of 59 cents (this includes both the actual cost of the beer plus the excise tax) which when divided by 2.9 gives the value of the beer alone (without the added excise tax) which is only 20 cents per 12 ounce can/bottle.

And since the old excise tax on that was 38 cents (1.9 times 20 cents), this means that the new excise tax of 35 cents per 12 ounces is actually a bit lower than the old excise tax (190% of imported value).

The only beers that should see an increase in price are those that come in a 750 ml size bottle, as since they are slightly over 24 ounces (25.36 to be exact) they will, in effect be triple taxed since the new tax is 35 cents per 12 ounces or any portion thereof (that is, they will be taxed as if they were 36 ounces). So depending on the original price, the increase could be as little as 10 cents per bottle to as much as 40 cents per bottle.

On the other hand, the same calculations show that high-end beers, those now costing say 2 dollars per 12 ounce can/bottle, should actually experience a significant drop in price of as much as 35 cents per can/bottle.

So all in all, depending on the buying habits of beer consumers, the overall effect of the new excise tax regime on beer should more or less balance itself out and, in effect be revenue neutral for ASG.

At the same time, consumers should seriously question any move by retailers to raise the price on 12 ounce servings of beer, whether in cans or bottles, based on the excuse that they are now being taxed at a higher rate, as the price of such beers should remain the same (in the case of bargain beers) or even be significantly lower (in the case of high end beers).

Signed,

Bryan Jackson

(Editor’s Note: Thanks for the heads up — let’s hope then there will not be a rise in beer prices. Ra)